The US government has shut down for the first time in nearly seven years, after Republicans and Democrats failed to agree a deal to keep the federal government funded.
A final round of voting in the US Senate on Tuesday failed to pass proposal to keep the government funded beyond midnight.
The shutdown will hit public services and lead to hundreds of thousands of federal workers being furloughed. It will also delay the release of vital data on the US economy.
Here is what you need to know.
Senate minority leader Chuck Schumer explains why the US government is on the verge of a shutdown © Reuters
What led to the US government shut down?
Each year, Congress must pass spending bills by October 1, the start of the fiscal year, in order to fund government departments and federal agencies.
Because no appropriations bills had been passed for the new fiscal year that began on Wednesday, lawmakers had tried to pass a stop-gap measure to keep the government running.
The White House and Republican lawmakers led the charge for what they called a “clean” continuing resolution, or CR, which would have kept federal funding at current levels until November 21.
But Democratic lawmakers resisted signing on to the Republican plans, arguing that any deal should also include a permanent extension of health insurance subsidies, which are set to expire at the end of the year.
“The Democrats want to shut it down,” Trump said in the Oval Office on Tuesday afternoon.
The US president met Republican Senate majority leader John Thune, Republican Speaker of the House Mike Johnson, Democratic Senate minority leader Chuck Schumer and his House counterpart Hakeem Jeffries on Monday in an eleventh-hour attempt to broker an agreement.
But the lawmakers emerged from the White House meeting no closer to a deal, with each side blaming the other for the impasse.
What happens now that the government has shut down?
In a shutdown, the federal government stops all “non-essential” functions. Historically, that has led to the furloughing of hundreds of thousands of federal workers and the closure of many government facilities, including national parks.
In the last government shutdown — from December 2018 to January 2019, during Trump’s first administration — about 800,000 government employees were sent home.
The non-partisan Congressional Budget Office on Tuesday expected that 750,000 workers would be furloughed this time, at a cost to the government of about $400mn per day in back pay.
Employees whose work is deemed “essential” are required to report to work, often without pay, until a shutdown ends. Essential government workers include active-duty military members and federal law enforcement officers.
But the White House — which has taken major steps towards reducing the size and scope of the federal government with the so-called Department of Government Efficiency — has suggested this shutdown could be different. It has indicated federal departments and agencies should consider firing employees, rather than temporarily furloughing them.
In a memo circulated last week, the Office of Management and Budget told federal agencies to “use this opportunity to consider reduction in force”, or permanent lay-offs.
Trump on Tuesday told reporters: “When you shut it down, you have to do lay-offs, so we’d be laying off a lot of people that are going to be very affected.”
How will the shutdown affect the US economy?
The CBO estimated the last shutdown, which lasted five weeks — the longest in US history — reduced economic output by $11bn, including $3bn that the US economy never regained.
“The effects of a government shutdown on business activity are uncertain, and their magnitude would depend on the duration of a shutdown and on decisions made by the administration,” the CBO said on Tuesday.
It added that it expected that if the shutdown lasted several weeks “some private-sector entities would never recover all of the income they lost as a result of the suspension of federal activity.”
Economists have warned that the OMB’s suggestion to use the shutdown to fire more federal workers could pose a threat to the weakening US labour market.
While this could be economically disruptive, Andrew Hollenhorst, economist at Citi, cautioned it was “unclear how many workers would be permanently laid off”.
A shutdown will also mean the temporary closure of the Bureau of Labor Statistics, delaying the release of the September jobs report — crucial economic data that is set for release on Friday. The report includes the latest figure for non-farm payrolls as well as the unemployment rate.
The jobs report is expected to influence policymakers at the US Federal Reserve ahead of their October meeting. Many investors were anticipating another quarter-point cut to the central bank’s benchmark federal funds target range.
While the jobs report matters for the Fed, officials have alternative sources — such as private sector data and information collated from the 12 regional central banks — to assess the health of the US labour market.
Additional reporting by Kate Duguid in New York
